Even before it formally opens its doors this summer, the new federal agency created to protect consumers from unscrupulous financial industry practices is coming under withering attack by Wall Street and Republican lawmakers. And despite a months-long charm offensive by Elizabeth Warren, the former Harvard professor and chief architect of the new agency, Warren has been unable to win over many of her critics on Wall Street and within the GOP.
Bills pending in the House would curb the power of the Consumer Financial Protection Bureau, while 44 Republican senators have promised to block confirmation of a director for the new agency unless those restrictive measures are approved.
With Democrats in control of the White House and the Senate, but not of the House, the legislation is unlikely to become law. But between the Senate GOP ultimatum and financial industry criticism of Warren, few believe she could be confirmed if President Obama nominates her as the director.
that I haven't seen in 20 years in Washington’
As a result, Obama may have little choice but to name Warren as director during a congressional recess in order for the agency to have someone at the helm when it begins to wield regulatory power this summer. Warren currently is overseeing the creation of the consumer protection bureau as a special assistant to the president. If she is made director through a recess appointment that would all but assure a politically bumpy future for the agency.
The Senate GOP pledge "creates a climate that is ugly. That is an in-your-face kind of attack that I haven't seen in 20 years in Washington," said Ed Mierzwinski, director of the consumer program at the advocacy organization U.S. PIRG. "Elizabeth Warren wants to come in and make that marketplace fair. Wall Street would prefer to decide on their own how to make money."
In a first test of the reaction to the work of the nascent regulator, the CFPB on Wednesday unveiled two mortgage disclosure forms for public feedback, aimed at simplifying the pile of papers that consumers must sign at a mortgage closing. Each form is one page. The consumer protection bureau will incorporate consumer testing and public feedback before settling on a final form.
"The goal of this project is to make it easier for families to see the costs and risks up front so they can pick the mortgage that is best for them," Warren told reporters on Wednesday. "It is always good for consumers to know the real cost of a mortgage."
direction with blinders on, you could end up
causing serious damage in the credit markets.
In announcing his choice of Warren "to oversee the creation of the CFPB last September, Obama described her as "one of the country's fiercest advocates for the middle class who will "oversee all aspects of the bureau's creation" and "play a pivotal role" in picking her successor.
Warren, previously the chair of the Congressional Oversight Panel that investigated the government’s handling of the financial crisis and Wall Street bailout, was the first to suggest the creation of a bureau to protect borrowers from abuses in credit cards, mortgages and other such loans. Under the financial regulation overhaul law (Dodd-Frank) enacted last year, the new watchdog agency will have authority to write and enforce its own rules and operate with a dedicated source of funding.
Warren has become a hero among many Democrats and labor unions for her willingness to openly criticize investment banks for their lending practices, and her supporters pressed the White House to name her to lead the agency. But many Republicans and those on Wall Street opposed Warren to head the new bureau, arguing that her aggressive views on regulation of financial firms could lead to a contraction of credit.
"We don't see the normal checks and balances on this agency that would give our members comfort," said Jess Sharp, executive director of the Center for Capital Markets at the U.S. Chamber of Commerce, which represents three million businesses. "The overall concern is that if you have a bureau headed off in one direction with blinders on, you could end up causing serious damage in the credit markets. That hurts individuals and small businesses."
Treasury Secretary Geithner expressed confidence that Dodd-Frank would withstand attacks and told The Fiscal Times at during press conference at the Harvard Club in New York Tuesday night, "There are people here in this city who are working hard to slow it down, reduce its scope, reduce its power and its force. And the only tools they have are to try to stop funding for important agencies and to block appointmentsI think the core part of the reform bill will survive these efforts because I think it's the right thing to do for the country and people won't put up with a system that's still this vulnerable without reform."
greater oversight of its rulemaking and budget
The proposed mortgage disclosure forms unveiled yesterday lay the groundwork for new mortgage rules that the bureau will impose after July 21. That’s when the Dodd-Frank financial overhaul law has authority over a wide range of consumer financial products, from home loans to credit cards and bank accounts.
Overall, critics of the agency want to see greater oversight of its rulemaking and budget, continuing an argument from the debate over last year's Dodd-Frank financial reform. The House legislation would essentially dilute the agency’s authority by changing the leadership structure from a single director to a five-member bipartisan commission, give other regulators more power to overturn CFPB rules and block the agency from launching until the Senate confirms a director.
"The administration fought very hard for a strong and independent consumer bureau and the public is enormously supportive of it. There's an effort here to weaken the agency by whatever means necessary," said Lisa Donner, executive director of Americans for Financial Reform, a coalition of labor, consumer and small business groups. "I don't think it will succeed. ... The bureau is well positioned to take up its job."
Even industry representatives acknowledged that GOP lawmakers' actions are less an attempt to push policy changes than send a signal to Wall Street of their agenda, should Republicans regain control of the Senate and White House in the 2012 elections.
"Much as I want to see changes in the CFPB, I don’t think that's going to happen in this Congress," said Bert Ely, a banking consultant based in Alexandria, Va. "What we're seeing is a setup for the future, when you have the Republicans in charge of everything including the White House, or at least both houses of Congress."
Republicans are consolidating their support in the financial services industry noted David Min, associate director for financial markets policy at the left leaning Center for American Progress. "They're trying to score some major points there. All the evidence is that they're winning," Min said. "They're taking a lot of the donations that went to the Democrats in past."
because of overregulation, it will give
Republicans an excuse to drag Warren to hearings.
A Senate GOP staffer rejected the notion that Republican actions are motivated by fundraising or political aims. "That's a baseless assertion," said Jonathan Graffeo, press secretary for Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee. "It's not forcing President Obama's hand, we're just asking him to work with us to bring some modicum of accountability to the bureau."
Thus far, there's no evidence that the White House and Republican lawmakers are involved in discussions or negotiations on the consumer regulator, amid an already heated climate over raising the debt ceiling. There is a possibility that tense relations will spill over into the nominations for other regulatory spots or administration goals, noted the chamber's Sharp. "It's a very complicated calculation for the White House," he said. "If they were to do something that shut down the nomination process, what does that do for the rest of the slate of nominees? There can be a pretty rapid escalation of consequences here."
Other potential candidates for CFPB director, including former Michigan governor Jennifer Granholm and former Sen. Ted Kaufman of Delaware, have declined White House overtures, either out of deference to Warren or disinclination to be in the hot seat. If Warren is named during an upcoming congressional recess — either over the Memorial Day or July 4 holidays or in late August — she could legally serve until the end of the current Congress in late 2012.
The stakes are certainly high for Warren and the bureau she's putting in place. "All these expectations have been built up and I don’t think they're going to come to pass," said Ely, the banking consultant. "She may end up being the CFPB's worst enemy. If there are problems that arise, she'll have only herself to blame because of the scope of her authority. She and others have basically overpromised in terms of what they can accomplish."
If the credit markets tighten because of overregulation, it will give Republicans an excuse to drag Warren to hearings to face criticism. Already, a House hearing is planned next week to review the CFPB's authority.
But the stakes are equally high for consumers and the huge number of financial products that impact the economy. "Wall Street reform was necessary because millions of people lost their homes, millions of people lost their jobs and all of us lost trillions of dollars in retirement income," Mierzwinski said.
Elizabeth Warren Launches Mortgage Forms Regulatory Overhaul (Huffington Post)
Congress May Defang Consumer Agency Before First Bite (MSNBC.com)
Bank Group’s Chief Expects Warren’s Nomination Soon (The Wall Street Journal)